Strong third-quarter results at Crocs were negatively impacted on the gross margin line by inflationary expenses and higher freight and inventory handling costs, but 45 percent of the expenses are seen as transitory. Gross margin came in at 54.9 percent against 63.9 percent in the year-ago period ended Sept. 30.
Operating income rose 30.0 percent to $264.1 million, but the operating margin declined to 32.4 percent from 26.8 percent on the lower gross margin and Heydude integration expenses. Net profit increased 10.3 percent to $169.3 million from $153.5 million as total revenues expanded 57 percent to $985.1 million from $625.9 million. EMEALA (Europe, Middle East, Africa, and Latin America) sales rose 26.2 percent (45.6% currency neutral) to $131.9 million. Asia-Pacific region sales increased 65.5 percent (82.3% currency neutral) to $138.5 million. Meanwhile, Crocs’ revenues in its home North American market inched 1.7 percent higher on a reported basis to $445.3 million.
During the period, Crocs generated 54 percent of revenues from the wholesale channel and 46 percent from direct-to-consumer (DTC), with a digital penetration of 37 percent.
With the results, the group raised its FY22 outlook. Bolstered by expected 17 percent annual growth for its Crocs brand to a range of $2.606-$2.63 billion, the company is forecasting an annual revenue range of $3.455-$3.52 billion. The revenue total includes an $850-$890 revenue contribution from the Heydude business. The annual operating margin is pegged at approximately 27 percent, and full results will be impacted by about $130 million in costs related to the Heydude acquisition that included roughly $75 million in non-cash costs of sales related to the write-up of inventory costs to fair market value.
An ongoing objective to build the Crocs brand to $5 billion in sales or more by 2026 assumes numerous growth initiatives. Among them: making digital 50 percent or more of the brand’s revenues, growing sandal sales four-fold to approximately $1.2 billion, growing China to approximately 10 percent of brand revenues from a current less than 5 percent, building Asia-Pacific to approximately 25 percent of brand revenues, and doubling Jibbitz sales.
Heydude, which generated $88 million of its $269 million in third quarter sales from DTC, is now projected to top $1 billion in annual revenues in 2023, earlier than an initial target of 2024. The group is working on growth initiatives for the brand, including accelerating its digital business, leveraging Crocs’ strong wholesale relationships to improve distribution and scaling up supply chain efficiencies.
Both the Crocs and Heydude operating segments are targeting 26 percent or more adjusted operating margins in the coming years.
